Should You Invest in Warehouses or Outsource Ecommerce Fulfillment to a 3PL?

As your ecommerce business evolves, you will need to reevaluate your logistics strategy every so often.

Once you’ve grown to a certain point, you will be faced with either obtaining a warehouse and hiring a team to fulfill orders, or finding a third-party logistics (3PL) company to outsource fulfillment.

Before you make a decision, there are many pros and cons to weigh, as this turning point will affect scalability and the need to invest in headcount, equipment, and time to learn the ins and outs of running a large scale fulfillment operation.

Is it better to have your own warehouse or use a 3PL for ecommerce fulfillment?

There is no right or wrong answer to this question; it depends on your unique needs and what you’re willing to take on. Let’s look at the benefits of managing fulfillment in-house, as well as outsourcing it to a 3PL company.

Managing your own warehouse and fulfilling orders yourself

Here are the pros of keeping fulfillment in-house.

You get to keep full control over your inventory and warehouse

Completing fulfillment in-house gives you complete control over how your items are stored, picked, packed, and shipped to customers. If you or someone on your team is already an established fulfillment expert, your distribution network is a core competency, and/or you’ve already built your own supply chain, you will likely be at an advantage to maintain fulfillment operations yourself.

Since your business is the only one that will be using the fulfillment facility, you can customize your operations and space to your preferences and needs, rather than conforming to a standardized operation shared across many businesses and industries.

You can offer custom tailored packaging

If you offer unique packaging and customization on every order, there’s a possibility that 3PLs will either be unable to handle that level of customization or charge you hefty fees. Being able to package items yourself gives you the freedom, flexibility, and reassurance that it will be exactly right each time.

If you sell items that are specially gift wrapped, made-to-order, fragile, or handmade and require special care, this can be very useful.

Outsourcing fulfillment to a 3PL company

These are the advantages of partnering with a third-party logistics provider.

There’s no need to invest in fulfillment infrastructure and headcount

When you hand fulfillment off to a partner, there is a lot less for you to worry about when it comes to setup, workload, and maintenance. The planning, budgeting, and execution of handling fulfillment internally involves the following:

  • Leasing warehouse space that meets your needs and plans for growth in terms of square footage, loading docks to receive inventory, and space that will hold the proper shelving units and pallet racks and be optimized to efficiently pick and pack orders
  • Purchasing forklifts, conveyors, and other equipment for the warehouse
  • Paying taxes, utilities, office supplies, internet, and other administrative expenses
  • Licensing technology, including warehouse management software (or building a homegrown system) and other devices to manage an in-house operations team
  • Recruiting and hiring staff labor for both hourly employees and management, determining employee benefits, getting workers’ comp and liability insurance, and dealing with payroll in an accurate and timely fashion
  • Complying with regulations and obtaining the proper licences to do business in a new facility, and having the proper certifications to ride a forklifts and other equipment
  • Replenishing shipping supplies, including boxes, envelopes, tape, dunnage, labels, printers, and other packing materials

Such hidden costs of self-fulfillment can add up and require a great deal of your attention. Many ecommerce companies find the valuable time they are spending on logistics would be better spent on more strategic activities to grow their business, ranging from marketing to product development.

“ShipBob should be top of mind for ecommerce companies experiencing growth, so they can focus on brand and design instead of packing boxes.”

Carl Protsch, Co-Founder of FLEO

Another important consideration is how your operations will be able to suddenly ramp up or even slow down when order volume changes.

Even the best forecasting can’t always keep up with unanticipated variability in consumer demand. What happens if several staff quit or you have a huge spike in orders? Will you be able to adjust and ship packages out on time?

It’s critical to plan for peak season accurately and proactively, in addition to any other highs and lows associated with seasonality.

Leverage the 3PL’s expertise and volume

A 3PL is an expert in fulfillment operations, including receiving, picking, packing, shipping, labeling, carrier pickups, returns, and more.

This makes it easy to quickly get started with a 3PL that already handles large volumes of shipments.

And with volume comes bulk discounted shipping rates, a network of partners that help drive faster and more effective service, a mastery of fulfillment best practices, and the ability to easily scale their workforce and handle any spikes in volume to help ensure a smooth Q4 and holiday season.

“Looking back, I’m still not sure how we pulled everything off, and I have no clue what I would have done without ShipBob. I probably would have recruited a ton of friends to pack boxes and bring hundreds of shipments to the post office at one time, which would be terrible.”

Steve Staffan, founder and CEO of Brummell

[Download: The Ecommerce Retailer’s Guide to Preparing for the Holidays]

Seamlessly connect your sales channels to the 3PL’s technology

Any modern tech-enabled 3PL will have streamlined shipping and fulfillment solutions for ecommerce businesses. This entails seamlessly integrated systems that connect to all the places you sell online to automatically send orders to the 3PL after they are placed, as well as real-time inventory reports, automated shipment tracking, and more.

“The backend integration between ShipBob and Shopify Plus is crucial and pushes data from one system to the other quickly and automatically. This makes it easy to manage ecommerce orders and shipments in a timely manner.”

Alli Reed, Owner and Founder of Stratia Skin

You can even manage inventory in your 3PL’s fulfillment center and automate alerts to reorder more when product levels are running low.

Utilize the 3PL’s geographic footprint to offer cheaper 2-day shipping

Some 3PLs let you store inventory at multiple fulfillment locations near your customers. Reducing the distance or number of shipping zones your shipment travels to its destination helps you reduce the shipping cost and time in transit.

This makes faster shipping options, like 2-day shipping or same-day delivery more affordable by using ground shipping instead of expedited air.

Using fulfillment centers in urban areas keeps your inventory closer to larger pockets of the general population, more so than in rural areas. Customers have come to expect free shipping when shopping online, and a 3PL can help make shipping a core competency of yours — without requiring you to build the infrastructure yourself.

“We understand that whatever Amazon does, we also need to do or we are going to lose business. The cost of offering free 2-day shipping through ShipBob is more than covered and offset by all of the additional orders and revenue we’ve gotten as a result.”

Founder of My Calm Blanket

[Download: The Guide to Offering Affordable 2-Day Shipping]

Conclusion

Order fulfillment is one of the most important yet challenging pieces of the ecommerce puzzle. What worked for your business early on most likely won’t help you get to the next level. Whether you’re considering opening your own warehouse or outsourcing fulfillment to a 3PL, unprecedented growth requires change.

Doing it yourself is a huge operational and financial undertaking. Good planning is necessary to develop the infrastructure, secure the warehouse(s), and purchase the equipment you’ll need.

If you’re not quite interested in the DIY route, partnering with a 3PL is a great alternative. Outsourcing fulfillment to a 3PL like ShipBob can eliminate staffing and property issues, help you cut overhead costs, and provide topnotch technology and a strategic network of fulfillment centers.

Learn more about outsourcing fulfillment

Download the free e-guide, “How to Choose a 3PL for Your Ecommerce Business” and learn more about how a 3PL can help your company scale and get tips for choosing a fulfillment partner.

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